I'm speaking as someone who put all his retirement savings into index funds year after year, but then married someone whose job is related to real estate. Real estate feels more concrete and understandable to her than finance, so that's where our money goes now.
It's not easy free money, and I don't know why you would think that any high-profile, low-barrier-to-entry investment would be easy free money. Half of my friends have either bought property or are constantly talking about it. My friends are part of a horde of first-timers who believe, like you, that it's easy free money, and their belief inflates prices.
And that's not just my amateur opinion: my wife and I sit in on a developer happy hour where experienced developers constantly bemoan that they haven't been able to work with certain types of property in years, because they get outbid by naive first-time buyers who don't have a plan for making money other than betting on the market going endlessly up. People who are looking for income rather than appreciation are not seeing opportunities at the current prices.
Thanks to my wife managing our properties herself and having a lot of applicable skills from her profession, we manage to make some money, but every hour she spends managing property is an hour less (or two, really) that she can bill her clients. I doubt that if we adjusted for that it would work out to be a wise use of time. It's work she enjoys and finds satisfying, so we don't look that closely at whether her time (or our money) would be more profitably invested elsewhere, but I'm certainly not quitting my software development job to double our commitment to real estate.
I'm in Austin, one of the hottest markets in the country, so in the end, it's possible that everyone regardless of how naive they are will be rewarded by continued appreciation. Income from real estate hasn't been a game-changing multiplier for us, but appreciation might be. Or not. That aspect of it is just a gamble.
It sounds like you're landlords, but you didn't explicitly state it. But isn't your tenant basically paying off each property, over the next 30 years. So right now your debt load may be high, but you're not experiencing that. You're just paying off the loans from rental income and handling the overage (prop tax and fixes) with the dev job. So in 30 years the two of you will have like 40M dollars paid over the backs of renters by selling all those properties..
I mean that's fine, it's legal. But if that's the goal of real-estate, then of course it will never be affordable to the next generations. Everyone wants to do what you are doing.
Yes, we're landlords. We own two small properties that were originally built as residences but now have commercial tenants because the zoning permits it and therefore the tax valuations assume we'll use it that way.
> Everyone wants to do what you are doing.
As with any other asset that makes money, there are reasons why property prices are what they are, and if it's a magic ticket to free wealth, you have to ask yourself why professionals with deep pockets aren't grabbing every property and driving prices up even further. In the case of properties that are within the reach of upper-middle-class earners, professionals are not willing to pay the prices that overexcited individual amateurs are.
> isn't your tenant basically paying off each property
...and it's special logic like this that convinces people that there's free wealth to be had. But there's no magic. There is a price. There is income. There are costs. There are assets that depreciate. The land is an asset that appreciates. That all adds up to a return on the investment. Professionals calculate the return and compare that to other things they could do with their money.
Amateurs (like us) just buy and hope and feel good because we're doing something that feels like rich person stuff. We're doing fine with our properties, but we'd be doing fine putting our money into index funds, too. In case it's not clear, I don't think our properties will turn out to be great investments for us unless the speculative aspect pays off big. But my wife actually enjoys the work of finding tenants, handling building maintenance, designing and overseeing improvements, etc., so we implicitly price her time at zero.
Let me repeat that to let it sink it: I think we'd be just as well off putting our money in the stock market. The main reason we've put a significant amount of our money in real estate because my wife enjoys it and doesn't mind putting a lot of personal work into our properties for free.
> you have to ask yourself why professionals with deep pockets aren't grabbing every property and driving prices up even further.
But... they are.
My Experience
Ever heard of Grant Cardone? He and his ilk are filling my youtube algorithm with seminars on how to do this. I meet strangers on planes telling me about gathering together in clusters of partners and buying up real estate. Ads on the radio hawk house-flipping courses. Robert Kioysaki sells book teaching how to do this. With just a little bit of inherited wealth - and American wealth is 60% inherited - people are building multi-generational legacies.
Research
In Massachusetts:
> In 2021, business entities purchased nearly 6,600 single-family homes across the state, more than 9 percent of all single-family homes sold. That’s nearly double the rate of such purchases a decade ago, according to a GBH News analysis of data provided by the Warren Group, a real estate data analysis firm. [0]
In 2021:
>corporate investors snapped up 15 percent of U.S. homes for sale in the first quarter of this year [1]
In 2020:
> a company called Treehouse Group was folded into Blackstone, then renamed in 2012, Invitation Homes was on a $10 billion spree, purchasing $150 million worth of houses per week.
In 2022:
> About 2.5 million households shopping for a first home will be shut out of the market this year, estimates Nadia Evangelou, senior economist with the National Association of Realtors. That amounts to 15 percent of all first-time home buyers. In an already daunting market, investor purchasing is adding to the obstacles. [3]
> “The more that investors buy up entire communities and turn them into rental communities — people don’t have a choice anymore,”
Yeah but part of what throwaway908724 says is absolutely true:
There are a lot of naive newbies _and_ investors buying up property right now without a viable plan to ever make money on that property. This in turn drives up prices for both potential owners and "reasonable" landlords, then by extension for renters both because potential owners continue renting reducing supply and landlords need higher rent to break even let alone profit.
The worst is when investors stop maintenance on the property, it begins to deteriorate, then they write it off and bail. That turns what could have been a rehabilitation by a competent investor into a tear-down. More than a few apartment buildings are being ruined by this sort of thing, evicting all the tenants in the process.
> Ever heard of Grant Cardone? He and his ilk are filling my youtube algorithm with seminars on how to do this. I meet strangers on planes telling me about gathering together in clusters of partners and buying up real estate. Ads on the radio hawk house-flipping courses. Robert Kioysaki sells book teaching how to do this.
In those cases the professionals are making money using people's dreams of becoming wealthy to sell books and seminars. Learn the One Simple Trick to turn your high salary into lasting wealth that Wall Street doesn't want you to know.
In the cases you cited where corporations are buying homes, yeah, there are firms that do a lot of quantitative research and forecasting and identify homes that they think are underpriced according to their rental value, ignoring the vast majority of properties on the market. If you're in a community they've identified as being underpriced, I guess it can look like they're buying up the whole world, but it's a selective strategy, completely different from the blanket assumption that property is an easy doorway to wealth and riches. As one of those articles notes, they don't compete against "wealthy boomers and the nation’s finance and tech bros," because we're willing to pay silly prices for property. They buy in neighborhoods where people like us aren't looking.
Those professionals may be making money on the books and seminars, but those books and seminars have been sold to people that are snapping up homes for investment, don't play dumb about that.
I know 6 people who all got into real estate including myself. Almost all of us exited because it's way too much work for very little gains. I just invest in an index fund, much closer to free money, and no calls at 2 am in the morning about a busted pipe.
"It's not free money because it's more time consuming than the stock market!"
It's free money in the sense that you are getting paid for having had the money to buy the property. Your wife might be putting in the time, but she is not more expert than 90% of people who could live there and maintain the property just as well (assuming they didn't have to pay you rent and the police didn't come to enforce your "property rights").
And yes, that means the stock market is also free money.
Are you spending an unreasonable amount of time managing property vs the rent you take in?
I spend a max of an hour a month on average on property management. Find good tenants (reduce the rent if you have to). On average my tenants have had 3+ year leases with minimal management.
We've done significant remodeling between each tenant just to stay competitive with other properties coming on the market. Plus each tenant requests specific improvements for their business, so those need to be negotiated. Then you need to keep a close eye on construction, like every day on site, because it often happens that if the tenant is on-site with the contractors they'll try to get them to do things that you said no to.
Finding tenants has taken a significant amount of work as well. There are commercial brokers that act as matchmakers, but you still have to meet with the tenants, walk them through the space, talk about what kinds of modifications they want, figure out if the timelines are compatible, and do a little bit of due diligence. She does quite a few of these where the details don't quite work out because the tenant is looking for a different style of building, easier in-out for the parking, improvements we'd never agree to, etc.
The process of transitioning the properties to commercial was also time-consuming. Commercial has entirely different requirements, and upgrading the parking, accessibility, etc. took a lot of time, money, and back-and-forth with the city.
I'm speaking as someone who put all his retirement savings into index funds year after year, but then married someone whose job is related to real estate. Real estate feels more concrete and understandable to her than finance, so that's where our money goes now.
It's not easy free money, and I don't know why you would think that any high-profile, low-barrier-to-entry investment would be easy free money. Half of my friends have either bought property or are constantly talking about it. My friends are part of a horde of first-timers who believe, like you, that it's easy free money, and their belief inflates prices.
And that's not just my amateur opinion: my wife and I sit in on a developer happy hour where experienced developers constantly bemoan that they haven't been able to work with certain types of property in years, because they get outbid by naive first-time buyers who don't have a plan for making money other than betting on the market going endlessly up. People who are looking for income rather than appreciation are not seeing opportunities at the current prices.
Thanks to my wife managing our properties herself and having a lot of applicable skills from her profession, we manage to make some money, but every hour she spends managing property is an hour less (or two, really) that she can bill her clients. I doubt that if we adjusted for that it would work out to be a wise use of time. It's work she enjoys and finds satisfying, so we don't look that closely at whether her time (or our money) would be more profitably invested elsewhere, but I'm certainly not quitting my software development job to double our commitment to real estate.
I'm in Austin, one of the hottest markets in the country, so in the end, it's possible that everyone regardless of how naive they are will be rewarded by continued appreciation. Income from real estate hasn't been a game-changing multiplier for us, but appreciation might be. Or not. That aspect of it is just a gamble.